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One of the most interesting topics raised following the historic worldwide climate change agreement made in Paris has to do with the possibility that the accord would lead investors to consider altering their strategies in terms of energy investments. As any wise investor understands, a reactionary approach is not always sound and can lead to poor decisions based on only the most immediately known factors. The energy industry is undoubtedly going to face major changes in the way it does business, but those changes are not yet clear and do not provide investors with an abundantly clear concept of how to alter their strategy in the most effective way possible.

As it currently stands, the world’s energy is still heavily reliant on carbon-based resources, and it appears clear that this will continue to be the case for quite some time as the shift to more renewable sources begins in earnest. While immediate action may not yet be necessary, it seems wise that divesting from these energy sources is a step that most investors will have to consider relatively soon. This naturally leads to questions over the allocation of funds in other energy-related investments and whether or not it is worthwhile to continue to invest in energy resources that seem to be falling out of favor due to concerns over climate change and the actions recently proposed in Paris. This is a complex question that requires a complex answer.

For communities like Scottsdale and Phoenix, it seems natural that renewable sources of energy like solar represent a perfect option. However, in attempting to provide completely renewable heating services, Scottsdale and other communities have found that it is difficult to provide adequate and consistent output (particularly for commercial users that require massive and constant energy access) due to energy storage issues and other factors still influencing the viability of renewable energy. It is for this reason that many renewable energy experts have pointed out that the shift will be far more gradual than most people assume.

Consider the fact that the previous century relied mostly on coal and nuclear energy for electricity and oil represented the primary energy source for transportation. With the changes being pushed, the next century will likely see a shift to a primary reliance on natural gas and a continued dependence on coal along with renewable resources, and renewable resources may only grow to represent 20 percent of energy usage according to some of the more optimistic estimates. This is due to the fact that the most significant energy users are still industrial plants like steel mills and factories that require a constant energy source along with the ability to throttle output, which is not yet possible through renewable energy sources.

Investors must also consider the fact that the basic economics of the situation may muddle the shift away from carbon-based energy sources. Tight oil appears to be in solid supply and access to Arctic oil reserves means it is unlikely that scarcity will have any immediate impact on costs, so any shift to alternative energy sources requires reliability and competitive pricing in order for significant change to truly occur. Given the state of research and development and the fact that even the most advanced storage solutions for renewable energy are not yet cost-efficient (and possibly not all that safe), it may be quite a while before the climate change agreement has any real impact on investment strategies.

The thought that investors should radically alter their investment strategy to include a greater representation of alternative energies may be exaggerated at the current time, but it is still important to consider the impact of investing in advance of any major shift in the energy industry. There is a real opportunity to yield a tremendous return on a relatively minimal investment, but this requires a deep understanding of the many factors that will influence the market going forward. Investors who are considering a shift in strategy should look into whether divestiture from carbon-based energy is wise and should also understand which type of renewable energy source is best positioned to yield the greatest return on investment. Adopting a long-term strategy that reflects the most likely outcome in terms of the future composition of the energy industry seems to be a shrewd course of action, but it is one that also requires a great deal of accuracy in research and predictive analysis.